From: CHAIRMANOFFICE
Sent: Thursday, May 17, 2001 10:33 AM
To: Rule-Comments
Subject: FW: Re: File S7-2-99
-----Original Message-----
From: Rachel Young [mailto:ryoung@wrscpa.com]
Sent: Wednesday, May 16, 2001 2:39 PM
To: 'chairmanoffice@sec.gov'
Subject: Re: File S7-2-99
Dear Chairman Unger:
I have personally witnessed brokers (i.e."financial consultant") providing untrue representation as though
they went through lengthy suitability analysis of products and investment strategies themselves for wrap-fee
and other accounts, failing to inform prospects/clients about costs involved, product and investment
strategy risks, and the limitations on services rendered. Their sales pitch attempts to fully blur the line
between their extremely limited role as an investment adviser under current law and those with the
qualifications and regulatory incentives to provide guidance in a fiduciary manner. (Case in point: the
new term "financial consultant" for a broker is really a marketing ploy to whitewash the negative
connotations associated with the term "broker.")
As such, I am writing to express my extreme opposition to the SEC's proposal to exempt brokers who provide
investment advice from regulation as investment advisors. If they can present themselves as such make them
met the test of other advisers because the prospect/client won't understand the difference until its too
late.
The SEC rule would effectively repeal the broker exemption created by Congress over sixty years ago. That
exemption applies when a broker provides advice that is "incidental" to his brokerage services. In contrast,
the SEC rule would exempt programs offered by brokers in which providing advice is the primary service.
Programs, such as Merrill Lynch's Unlimited Advantage, are marketed on the basis of the advisory services
they provide. Under the new rule, however, they will not be subject to adviser regulation contained in the
Investment Act.
The effect of the new rule will be an unprecedented diminution of investor protection. Rather than
identifying specific aspects of adviser regulation that may be unduly burdensome to brokers, the rule
renders all adviser rules inapplicable to brokers providing investment advice. At a minimum, the rule's
excessive scope is wholly unwarranted.
Broker-advisers will be able to recommend stocks to clients and then sell the stocks to clients out of their
own inventories without obtaining client consent, as the law requires for all other advisers.
Broker-advisers will not be required to provide clients with information about their services, fees and
conflicts of interest that all other advisers are required to provides. Broker-advisers will be able to
advertise their advisory services without being subject to restrictions on advertisements that apply to all
other advisers.
The rule will create an uneven playing field, with one set of advisers held to a high standard of fiduciary
conduct, and another set held only to the minimal standards that apply to brokers at a time when complaints
of broker abuse is already very high. The practices I've noted have ranged from basic misrepresentations
to fragrant abuses of current law, why open the door for more abuse. The rule will continue to undermine
the public's confidence in financial services professionals and make investors less inclined to trust
their saving to our capital markets.
Thank you for your consideration of my views.
Sincerely,
Rachel E. Young, CFA
Registered Investment Adviser in Tuscaloosa, AL